Aggressive, Simplified

In its initial version, Aggressive was
an equal-weighted portfolio derived from two different quantitative stock screens,
based on companies that trade on U.S. exchanges. Each screen produced an exceptional
trading plan by itself, but when the two were combined, the volatility of returns
was reduced without much degradation of total returns. This was because their
backtested, detrended equity curves have relatively low correlation. Through
experimentation and backtest, I have found a simplified "one screen" method
that produces slightly improved results, and in my opinion, simpler is usually
better.

Information is as of the close on May 9, 2008.

Model Allocation

Based on beginning with a $100,000 portfolio at inception, these are the current
weights and holdings. In a previous update, I switched the initial target from
5% buy weights in each position, or 10 positions from each screen, to 10% buy
weights per position, or 5 positions from each screen. In the last post, I
took a double position in one stock Fairfax Financial (FFH), because it qualified
for both screens. See my
previous post on this system. I am presenting the existing model allocation
in ticker order, instead of screen name order, because the newer, simpler model
will use only one screen. The portfolio weights are shown behind the ticker
symbol, and are rounded to the tenth of a percent.

One stock, KWR, in the Aggressive portfolio
went ex-dividend in the past four weeks. Total dividends for the model portfolio
were $71.99.

Changes To Model Allocation and System Weights

Through experimentation and backtest, I have found a simplified "one screen" method
that produces slightly improved results over the original blend of two screens.
The new screen combines two momentum filters with a valuation sort order, holding
the cheapest stocks that meet the momentum requirements. I have tested various
holding counts and settled on the top ten for my model portfolio tracking.
Counts of five through twenty were tested with robust results, the main response
being a reduction in volatility as more stocks were held, but returns diminished
slightly and transaction expense increased as well. The new model allocation
is a 10% holding of each of the following stocks, sorted by Price/Sales ratio
(ascending).

If this system were to be initiated today, the target allocation would be
a buy for 10% weight holdings of each stock listed.

Tracking

All existing holding will be sold Monday morning, market at open. The target
allocations based on 10% holdings and Friday's closing prices will be bought
Monday morning, market at open.

Commentary

For those interested in a less diversified, more aggressive approach, holding
only the top five from the previous list would provide that. I personally think
there's little to be gained in return, and a lot to be "gained" in terms of
volatility, from that technique.

Here are the "next five" on the list, for those interested in holding a larger,
more diversified set of risks:

The most passive approach that could be taken with this screen is to view
the list merely as interesting candidates for further evaluation. I prefer
using other initial screens when taking this approach, however.

There is also an "active trader" approach that could be initiated with these
lists. By keeping these stocks on a watch list and monitoring them for breakouts
or "runaway" conditions, they could present day- or swing-trade opportunities
for the trader who is capable of monitoring the markets intraday. For example,
I might consider a day with range of double a recent average (20 day, perhaps)
and a close high in the range, or a gap up, a "runaway" condition if volume
were higher than a recent daily average and a new high were made. If I were
trading this approach, I would set a tight initial stop based on a one- or
two-day price low, and use a wide trailing stop to let the market run.

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